2010 Premier 150: Slow Recovery
Fiscal 2009 was actually worse than anticipated for many PHCP wholesalers. While 46% of wholesalers surveyed last year projected a decrease in sales in 2009, this year’s survey found that 92% reported lower actual sales for the past year.
Most wholesalers reported double-digit declines in year-over-year sales each month during 2009, but the percentage decreases for each of the last six months of 2009 were progressively smaller, and the median December 2009 versus 2008 decrease was the lowest for the year, according to the American Supply Association in a report to its members. Respondents to ASA’s survey reported a median inventory decline of -11.4% for December 2009 vs. 2008.
Nearly 34% of the wholesalers said their gross margin percentages year-to-date were flat or had increased as of Dec. 31, 2009 compared with the same period in 2008.
However, 87% of the wholesalers who responded said their year-to-date profit before tax had declined, and nearly 81% reported having fewer full-time equivalent employees versus a year ago.
Performance IssuesParent company Wolseley plc (Reading, England) said sales of Ferguson (Newport News, VA) dropped 18.6% for the fiscal year ended July 31, 2009. The number of Ferguson branches was cut by 154 to 1,228 locations and employment was reduced by 3,840. Ferguson’s total employment dropped by 25% in the last two years. Wolseley Canada continued to outperform the market. Excluding the Industrial Products Group, its revenue decline for the year was 3.4% (Wolseley said that management of the IPG was transferred to Ferguson).
HD Supply, Atlanta, GA, reported a sales decline of 24% for its 2009 fiscal year ended Jan. 31, 2010. This was attributed to the continued decline in the residential, commercial and municipal construction markets, a decline in the oil and gas markets, and unfavorable fluctuations in prices of commodities, such as steel, PVC, copper and nickel. The company announced plans to close 25 branches and reduce employee count by about 400 during the third quarter of fiscal 2009. Morris Cregger, president of Cregger Co., Columbia, SC, shared, “Our firm experienced a decline in sales for only the second time in our 31-year history as we saw large projects dry up due to a lack of financing and in some areas, a lack of demand.”
Interline Brands, Jacksonville, FL, said its 2009 sales were down 11.4% versus 2008; operating income dropped by 33.4%; gross profit declined 12.4%; and earnings per diluted share decreased 37% compared with the prior year.
An executive with a Midwest PVF wholesaler noted, “Along with the pipe, valves and fittings industry as a whole, we felt the effects of the broad recession on our revenues. For the first time in eight years we did not grow revenues.”
Todd Eber president of W.A. Roosevelt, La Crosse, WI, commented, “Clearly 2009 was an extremely challenging year for virtually all businesses, and those tied to construction and manufacturing like our industry felt greater challenges than most.”
HVAC equipment has been hurt the worst, according to an executive with an HVACR wholesaler. "A predominantly refrigeration wholesaler could have a completely different sales result for 2009 than an HVACR wholesaler that does 35% in HVAC equipment. Business in the West has been hit the worst,” he pointed out.
“Commercial HVAC was the hardest hit segment of our business in 2009,” another wholesaler commented.
Frank Nisonger, president of ASA and chairman, president and CEO of Slakey Bros., Sacramento, CA. told Jim Olsztynski in an interview published in September Supply House Times that his company’s sales had declined significantly over the past three years primarily due to the drastic slowdown in new construction. “We have made numerous painful expense reductions and are challenged with rising semi-fixed costs - such as occupancy - and the need for adequate staffing levels to maintain superior customer service,” he said.
Another wholesaler reported that sales and gross margin activity both decreased by about 20% in 2009.
For some wholesalers the drop in annual sales was as high as 27-30%. Meanwhile, an East Coast wholesaler observed that this survey does not accurately address the number of wholesaler locations. “Wholesale and showroom locations should be listed separately so that, as in our case, you could recognize a closing of a wholesale location while an adjacent showroom remained open or visa versa,” he said.
Regional PerformanceThe Canadian Institute of Plumbing & Heating reported that regional performance of Canadian PHCP wholesalers ranged from a 3.5% increase to a 27% decrease in sales for 2009 vs. 2008. This averages out to about a 10.6% decline.
“In the United States, 2009 was the toughest year that our branch managers will have in their careers,” said the president of a high-ranking PHCP wholesaler. “The market in Canada was much more stable because they didn’t have big highs, so I don’t think they will have the same lows.”
The North Central Wholesalers Association reported a median 16.65% decline in sales for 2009 versus 2008 for 33 wholesalers representing about 170 locations in Indiana, Michigan, Ohio, western Pennsylvania and West Virginia. Individual wholesaler results ranged from a 1% sales increase to a 30% decrease for the year.
On the Positive SideCregger Co. opened four locations, an offsite showroom and made two acquisitions during 2009.
“We expanded our footprint into seven new markets,” said Morris Cregger, president. “Our new stores were driven by our entry into HVAC with the obtaining of the Goodman equipment line. We feel we have positioned our company in a position to double our sales over the next three years with the HVAC addition and the geographic expansion.”
Richard Campbell, director of marketing at Western Water Works Supply Co., Chino Hills, CA, noted, “Although 2009 was a challenging year for our industry, we expanded our operations and opened a new location that has performed well and helped our business.”
Eastern Industrial Supplies, Greenville, SC, acknowledged that its sales numbers for 2009 were “down substantially” from the previous fiscal year but yet it remained profitable and met its return on equity goal for the period.
“Despite the uncertain economy in 2009 we continued to expand our company, opening two new locations and acquiring one distribution business,” said Mike Michel, VP of marketing, R.E. Michel Co., Glen Burnie, MD.
“We're extremely proud of our staff's performance during the last couple of years,” noted Jason C. Lute, president/COO, Lute Supply Co., Portsmouth, OH. “To be able to weather this economy with a cumulative sales reduction of less than 1% from our best year ever is quite an accomplishment.”
Michael Grebe, Interline Brands' chairman and CEO, commented, "In 2009, we carefully evaluated our cost structure, our supply chain, and our go-to-market strategies. We took decisive action throughout the year to strengthen the operations of our business. We generated over $133 million in free cash flow and paid down $98 million of debt. We are pleased to close out the year in a stronger financial position.”
Another wholesaler reported that sales were not as bad as expected, only down about 5%.
Still another said a combination of wage cuts, furloughs, layoffs and overtime cuts enabled it to survive the year with its core employees.
New To The SurveyThree companies are new to the Top 150 list this year:
AcquisitionsSome wholesalers expanded their operations in spite of the economy.
Allied Refrigeration (Signal Hill, CA) opened a new location in Culver City, CA; Lee Supply (Indianapolis, IN) opened one showroom, remodeled another; PACE Supply (Santa Rosa, CA) opened three new branches and hired 90 people; Active Plumbing Supply (Painesville, OH) opened a branch in Avon, OH; Western Water Works Supply (Chino Hills, CA) opened its fifth location in southern California in El Cajon; Eastern Industrial Supplies (Greenville, SC) opened a branch in Hanahan, SC; Wilson (Houston, TX) opened a location in Jane Lew, WV; Murray Supply (Winston-Salem, NC) opened a 25,000-sq.-ft. branch in Charlotte, NC, to serve the MRO market; Davis & Warshow (Maspeth, NY) expanded and remodeled its showroom in the Architects & Designers Building in New York City; Northeastern Supply (Baltimore, MD) moved its Leonardtown, MD, branch to a larger, more convenient location; Johnstone Supply (Portland, OR) opened a 30,000-sq.-ft. location in Knoxville, TN, and a 156,000-sq.-ft. distribution center in Lehigh County, PA; Lute Supply said it would combine two wholesale facilities in Portsmouth, OH, into one at a larger 96,000-sq.-ft. headquarters and corporate office; Wilmington Winelson opened in Wilmington, NC; Brauer Supply Co., St. Louis, MO, opened a 24,000-sq.-ft. distribution center in Kansas City, KS.
In other news, F.W. Webb, Bedford, MA, said in October its Webb Kentrol/Sevco operation was acquiring the Control Equipment Co. in Cazenovia, NY, the Masoneilon rep for Upstate New York. Earlier in 2009 F.W. Webb acquired O’Connor & Senecal of Sutton, MA, a manufacturers rep of major instrumentation product lines.
Ferguson, Newport News, VA, opened several showrooms in 2009, including a 10,500-sq.-ft. showroom in Fresno, CA, in January; an 18,000-sq.-ft. showroom in Fort Lauderdale, FL, in February; a 4,500-sq.-ft. newly remodeled showroom in Jackson, TN, in April; and a 6,500-sq.-ft. showroom in Evansville, IN, in May.
Cregger Co. acquired the 20,000-sq.-ft. branch of Kenny Pipe & Supply in Lexington, KY; opened a 17,000-sq.-ft. branch in Brunswick, GA; and relocated its Charlotte, N C, and Greenville, SC, branches into larger facilities. The wholesaler also announced plans to open a showroom in Greenville, SC.
Gustave Larson (Pewaukee, WI) acquired Indiana Supply with branches in South Bend, Fort Wayne & Indianapolis, which increased its size to 48 locations in 18 states.
The R.E. Michel Co. (Glen Burnie, MD) acquired Schwartz Distributing (New Philadelphia, OH), an HVAC wholesale distributor.
The Granite Group (Concord, NH) opened a location in North Haven, CT, that was formerly owned by Arpino Supply.
Moore Supply (Conroe, TX) opened a renovated and expanded Bath & Kitchen Showplace in Humble, TX.
McJunkin Red Man Corp. (based in both Charleston, WV, and Tulsa, OK) acquired Transmark Fcx Group B.V., an international distributor of specialty valves and flow control equipment.
Baker Distributing Co. LLC (Jacksonville, FL) acquired certain assets of Sandy, UT-based Air Conditioning & Heating Supply.
TSC Distribution Group, parent company of Torrington Supply (Waterbury, CT), purchased the assets of Litco Supply, Torrington, CT, which will continue to operate as a separate company under the name Litco Supply Co.
Leeps Supply (Merrillville, IN) acquired WaterPlace, a decorative plumbing and hardware showroom in New Buffalo, MI.
MilestonesA number of wholesalers celebrated anniversaries in 2009 including: Economy Plumbing Supply, Indianapolis, 77 years; Robertson Heating Supply (Alliance, OH) 75 years; Leeps Supply Co. (Merrillville, IN) 55 years; Schmidt’s Wholesale (Monticello, NY) 55 years; and Century Air Conditioning Supply (Houston, TX) 35 years.
In other news, Earle Cohen, president and CEO of Kelly Pipe Co., Santa Fe Springs, CA, retired in November 2009. He had spent 55 years in the steel pipe distribution industry and led Kelly Pipe for more than 25 years.
Also, Inge Calderon, executive director of the ASA Education Foundation and former executive vice president of the American Supply Association, departed ASA after 24 years in June 2009.
Outlook For 2010PHCP wholesalers appear to be guardedly optimistic about 2010. The Supply House Times survey found that 62% of respondents project a sales increase for 2010 and 20% are predicting flat sales.
“WinWholesale revenues are tied mainly to residential and commercial construction, so we expect to continue experiencing the market’s effects in 2010,” said Rick Schwartz, president and CEO of WinWholesale (Dayton, OH). “With that said, even with the predicted slow residential recovery and decline in the commercial market in 2010, WinWholesale expects a small increase in sales in 2010. The reason for the revenue increase is our focus on sales and revenue, and the return to operating expense levels similar to the levels we attained in 2006 and 2007. WinWholesale has a strong financial balance sheet and liquidity, and is positioned well for the future."
According to an executive with Eastern Industrial Supplies (Greenville, SC), “While our industry, along with the economy, is projected to be flat-to-down in 2010, we continue to be optimistic about our long-term future. Our plans include growth and expansion into new markets, along with helping to create wealth and security for others.”
Todd Eber, president, W.A. Roosevelt (La Crosse, WI) commented, “Looking into the near future, we see a lengthy period of time where core business demand will slightly decline, then level off until job creation takes hold and gains consistent momentum.”
Mike Michel, VP of Marketing, R.E. Michel Co. (Glen Burnie, MD) said, “We shall continue to grow in 2010, having already opened one new location with two more on schedule for this year.”
Bill Duggan, president of Republic Plumbing Supply (Norwood, MA) shared, “I see a slow recovery in 2010 as people catch up with maintenance projects they have put off for the past year.”
Steve Bellar, president of Thrifty Supply (Bellevue, WA) noted, “It will be very difficult to keep sales in 2010 the same as 2009. The market really seems to be getting slower.”
George H. Sapna II, president of Penco Corp. (Seaford, DE) said, “New construction in the Mid-Atlantic region ground to a halt, as did bank lending and credit availability to builders and plumbing and HVAC contractors. Unemployment was and continues to be the biggest problem, creating fear and uncertainty throughout the market place. The first quarter has been a bust due to the economy, lack of jobs and record snowfall. Hopefully the spring construction season will see a turnaround. We feel a great mistrust of the federal government. The administration and Congress appear to be completely out of touch with reality and totally out of control. We need change, but not what we are getting now!”
According to Dennis Goode, CEO, M. Cooper Supply (Mokena, IL), the 2010 fiscal year will show minimal improvement but positive growth.
“The lingering challenges of the severe recession will continue into 2010,” said Christopher M. Perry, president/CEO of Vamac (Richmond, VA). “However, with focus and a well executed business plan, a respectable growth in sales, profits and market share is available.”
Albert Brown, CEO of Metropolitan Pipe and Supply Co. (Melrose, MA) noted that commercial plumbing and heating business, particularly for schools and hospitals, is very slow, and there is no new construction.
“While we think 2010 will be more difficult than 2009, particularly in the commercial markets, there's enough business out there for us to have a solid year,” commented Charlie Murray, CEO of Murray Supply Co. (Winston-Salem, NC). “Growing market share will be the key.”
Interline Brands (Jacksonville, FL) will continue to pursue its strategy of larger and more productive distribution centers in 2010, according to Kenneth D. Sweder, COO. “That will enable us to further improve the customer experience and enhance our ability to scale our business as conditions improve," he said.
"We believe the worst may now be behind us, but visibility remains low and we anticipate continued variability within our end-markets,” said Michael Grebe, Interline Brands' chairman and CEO. He said for the first quarter of 2010 he expected the demand environment to remain similar to what had been experienced over the past few months.
The president of one of the top-ranked PHCP wholesalers projected another 5-10% sales decline in the U.S. during 2010 and flat sales in Canada. “Our company and industry is better positioned because of expense reduction in 2009,” he said. “Liquidity and cash flow will be bigger issues for wholesalers in the U.S. in 2010 versus 2009.”
An executive with a Midwest PVF wholesaler noted that his company’s management is optimistic that 2010 will improve as the economy recovers. “The company that prospers in its niche role in the stainless and alloy piping sector will return to double digit growth,” he said.
An executive with a PHCP wholesaler serving the Western states said they are projecting a slow recovery, no double-digit growth until 2013. “We are seriously dependent on new construction,” he noted. The vice president at another wholesale firm said, “We see a little uptick on the residential side in Arizona. Commercial is still struggling. That will be tough for the next year or two. We’re seeing some good signs on the residential side.”
In ClosingAn East Coast wholesaler expressed concern regarding the survey’s question about “locations,” suggesting that wholesale and showroom locations be listed separately.
Also there may have been some confusion regarding the survey’s question about “employees.” Some companies reported the current number, others listed the number as of year-end 2009.
We will consider these concerns when we do our survey next year.
In spite of the challenging year, Frank Nisonger of Slakey Bros. expressed confidence in the continued survival of independent distributors, both regional chains and single-location firms.
Keith Bennett, president of Security Plumbing & Heating Supply (Selkirk, NY), summed things up nicely: “I have read a poignant comment on the economy, ‘If you are waiting for business to be as it was in 2007, it is not going to happen in the next five years, unless you make it happen.’ (Alan Beaulieu). I concur.”